IG Markets - Morning Prices Jan 29

The S&P 500 was little changed heading into the close, after finishing above 1500 for the first time since 2007 on Friday night.

If the S&P 500 does close lower, it will end its longest rally since 2004. It is currently trading at 1501 points, down 0.1%.

With this bullish sentiment, there are some warning signs that we could be looking at a topping market. There is still quite a lot of ‘wait-and-see’ going on, and the RSI indicator is now at 80, suggesting the market is overweight.

We have been harping on about this for weeks - yield-hunters and defensive plays are winning the battle over risk assets, and that gives us a reason to pause. If we are going to ride the bull market of 2013, additional levers will be needed to see investors jumping in and riding the wave.

One positive thing we are starting to see for the continuation of the bull-run is: one of the last safe-haven assets, US- treasuries, are staring to unwind. Over the last few months, we have witness safe-haven currencies unwinding, with the pound, the yen and the dollar all devaluing. Now we are seeing some funds being release from bonds, with 10-year treasuries yields rising to 2%. We do understand that on the other side of the trade is the Fed, and we never fight the Fed (It is continuing to buy $85 billion worth of mortgage-backed securities every month). However, the flow out of bonds and into equity funds, (not directly into shares) is adding weigh to the idea that investors are now fearful of missing out and not just fearful.

Moving to our region, and over the weekend the yen appreciated after Japan’s Economy Minister Akira Amari denied that his government is ‘interfering’ with the country’s currency. Both Germany and Canada have both voiced concern over Japanese attempts to devalue the yen. Both counties have accused the Japanese of meddling with the free market, something Japan denies. This was enough to see the yen strengthen, with USD/JPY rising 0.13% to 90.79 and saw the Nikkei fall 0.94% to 10,824 points in yesterday’s trade. However, most other Asian markets were up, which is a good sign for us.

Looking to our currency, AUD/USD continues to unwind, dropping an additional 0.12%, and finds itself well below $1.05. Currency traders continue to turn to EUR/USD or EUR/JPY, as LTRO repayment receipts due on the weekend came in ahead of expectations and left the Aussie dollar out in the cold. AUD/USD is currently $1.0457

Although the currency is fading, the local market continues to outperform. Since the start of the year the market has risen 12 out of the last 17 trading days, and has advanced every day over the last eight days. Our market has continued to hold its own when regional markets have pushed lower. This adds to the idea that investors are starting to look at the ASX with a bit more excitement rather than the dread we saw over the past three years, with the market having traded completely sideways. The fear trade looks well and truly over, with the market now up 21.3% since the June low last year; what we are careful of is a possible pull-back. However, that isn’t expected to be today.

Moving to the open and we are calling the ASX 200 up 29 points to 4864 points. The strong upward move can be contributed to the rise in the S&P futures. Since Friday night the futures market is up 0.6%, and we are now playing catch up. We expect the market to continue to move north today, making it the ninth straight up day. We are expecting a flat start for BHP, with its ADR pointing up 0.14% to 37.15, after base metals slid overnight. Looking to the rest of the week, and the market will be eagerly awaiting the second quarter results of Wesfarmers and Woolworths. These results are a good indicator of Christmas sales and consumer sentiment. They also give a guide as to how inflation in food is tracking, with 80% of the Australian food consumption market covered by Coles or Woolworths.

Market Price at 8:00am AEST Change Since Australian Market Close Friday 25th Percentage Change
AUD/USD 1.0414 -0.0002 -0.02%
ASX (cash) 4864 29 0.60%
US DOW (cash) 13886 -7 -0.05%
US S&P (cash) 1499.8 -1.0 -0.07%
UK FTSE (cash) 6307 17 0.26%
German DAX (cash) 7839 -48 -0.60%
Japan 225 (cash) 10772 -71 -0.65%
Rio Tinto Plc (London) 35.07 -0.11 -0.31%
BHP Billiton Plc (London) 21.11 0.07 0.34%
BHP Billiton Ltd. ADR (US) (AUD) 37.15 0.05 0.14%
US Light Crude Oil (March) 96.47 0.48 0.51%
Gold (spot) 1655.38 -5.0 -0.30%
Aluminium (London) 2047 -2 -0.08%
Copper (London) 8050 -4 -0.04%
Nickel (London) 17585 220 1.27%
Zinc (London) 2379 21 0.89%
Iron Ore 148.4 -0.2 -0.13%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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